Neuromarketing is a very exciting new field that is driving business growth, think Big Data ten years ago. The course, taught by Neuromarketing pioneer Thomas Zoëga Ramsøy of the Copenhagen Business School, delves into neuroscience and how both small and large companies can use it. It leverages increasing understanding in how the brain works with the emergence of behavioral economics and data-driven marketing.

While marketing in the past largely relied on intuition, surveys and focus groups, neuromarketing starts by understanding how the brain functions and what parts of the brain drive different behavior. By understanding what parts of the brain drive emotion, motivation, etc., you can then create products and marketing campaign most likely to get customers to purchase.

While I am not the person to summarize how the brain works, below are some of the key learnings from Professor Ramsøy’s course and implications for the game industry.

Cognitive Load

The concept of cognitive load is critical to the success of many products, from games like slots to apps like Uber. Given the the human brain consumers 20 percent of the body’s energy but only is 2 percent of the body’s mass, it is important to understand that people will subconsciously work to reduce the amount of energy the brain is using.

Cognitive load is how much info people are processing at any one time. Cognitive load is tied to working memory, the more information in that short-term memory the higher the cognitive load. As cognitive load increases, consumers are less likely to make a purchasing decision.

The concept of cognitive load also confirms why UIUX is often better when simpler. A simple user experience minimizes cognitive load, thus not creating too much strain.

Implications

It is important to manage proactively consumers’ cognitive load. Giving consumers many choices increases their cognitive load, thus making them less likely to purchase. Thus, it is critical that rather than giving your customer 25 different packages they can buy, keep the purchasing decision simple.

While simpler is better is often considered the goal of UIUX, it often is abandoned so new features can be added. The reality is that simpler is more important than features and you need to build your products not as a tradeoff between the two but as something that focuses on minimizing customers cognitive load.

Uber is a great example of the success of this strategy. From a very simple interface to only a few options to not even letting customers think about tipping to not even having to worry about paying, using Uber requires very little thought. Yet this incredibly simple app has made Uber worth over $60 billion.

Not only is cognitive load important when creating the overall product but also the underlying mechanic in the product. People often question the enduring popularity of slot machines. There are, however, virtually no game mechanics that have lower cognitive load than slots. The slot mechanic provides entertainment without using too much energy. When creating other mechanics, it is critical to understand how much mental energy they will consume.

Search and attention

One of the most powerful applications of neuromarketing is related to search and what consumers select following the search process. Critically, there are two types of search, and each is driven by different parts of the brain.

First there is bottom-up search, which is largely unconscious. This is where a person comes across something and it grabs your attention. Certain receptors in eyes more receptive to things like contrast and density. The best example is when you are in a grocery store and you notice something you were not planning on buying. This type of search is generally driven by colors, shape and density. Consumers are likely to buy some that grabs their attention. As much of consumer behavior is unconscious,

The other type of search is top-down, which is primarily conscious. This is when somebody is searching for something in particular. You may again be in a grocery store and looking for eggs. You will focus your mental energy on thinking hard and finding what you need.

Implications

You need to design your UIUX based on what type of search your customers will be conducting. If they are conducting a top-down search, then you do not have to prioritize making it that visible. They will find it regardless. Conversely, if you want to engage your easier (get them to try a new feature or new content or have them think about monetizing), then you want to stand out during a bottom-up search.

In this case, there are some great new tools for UIUX to optimize visual search results. Professor Ramsøy, who taught the course, has a commercial product called Neurovision. Neurovision allows you to put in an image of your game (in our case) and see what players will notice without the need of a fancy heat test, thus what will jump out in a bottom-up search (see example below):

It is also often used by retailers (including Walmart and Home Depot) to understand what consumers will see while walking through their store, it can even analyze what people will notice during videos. Neurovision is one of a host of new products based on Neuroscience that help you scientifically improve your products rather than relying on anecdotal experience with a limited number of users.

Branding

The value of brands is often debated but neuromarketing shows the value of a brand. Brands impact how we perceive and enjoy a product and stimulate additional parts of the brain that the product would not normally impact.

As discussed with cognitive load, the brain uses a lot of energy and consumers are constantly looking at ways to minimize this energy usage. Brands help consumers save energy because when they see a brand they are familiar with, the branding fills in a lot of information that they do not have to then ascertain (quality, style, etc.). Thus, when deciding between a branded product and a brand they are not familiar with (or no brand) the branded product has an advantage as choosing it requires less energy.

While this analysis may not seem like neuromarketing, neuromarketing confirms it. When people who have been exposed to branding for a certain paint are then in the paint section of a hardware store, eye-tracking confirms that they spend more attention on products from brands they are aware of. This phenomenon then leads to a higher likelihood of purchase.

Branding also helps with search, particularly bottom up search. While a consumer focused on finding a specific product or specific feature set may not respond to branding, as they are doing a top-down search, someone who is browsing for a new product (say a new casino app), a familiar brand would make it more likely to gain a customer’s attention.

Finally, branding stimulates parts of the brain that then impact how consumers feel about a product. A strong brand will create positive emotions around a product even before the consumer evaluates the product.

Implications

Branding is not dead or useless in a performance marketing world. Strong brand can translate into a higher impact from your performance marketing, customers are more likely to click on your ads. They are also more likely to pick your product when searching organically for one.

Using Neuroscience

Neuroscience is a strong tool to help improve your product and marketing. By understanding how the brain processes information, you can tailor your product and marketing to optimize your chances for success.

Key takeaways

Neuromarketing, based on neuroscience, uses understanding of the brain to drive product and marketing decisions, just as big data creates much higher returns.

You can increase sales and satisfaction by minimizing cognitive load, how much your customer’s brain has to process navigating your app or store

Your UIUX should account for whether your customer is conducint a top-down search (looking for something in particular) or bottom-up search where you want them to find something.

A colleague of mine recently used in a presentation a chart from a Harvard Business Review article and it was so helpful in defining a new product I wanted to share the concepts with everyone. In The Elements of Value by Eric Almquist, John Senior and Nicolas Block of Bain’s Strategy Practice, the authors discuss that while consumers evaluate a product by its perceived value versus cost, most marketers and executives focus on the price side of the equation. They attribute this focus largely to it being easier to manage price, as there are limited variables involved and it is easy to test.

It is more challenging to measure and optimize what customers truly value, whether functional (giving someone more capabilities) or emotional, because it is often a combination of multiple components. While value is always intrinsic to the customer (different people have a different value for the same attributes), the authors have identified universal building blocks of value to improve performance in current markets or enter new markets. Their analysis shows that the right combinations of these attributes leads to higher customer loyalty, greater willingness to try a brand and sustained revenue growth.

In the article, they have identified 30 elements of value (see below), fundamental attributes in their most essential and discrete forms. You can categorize these components in four buckets:

Functional

Emotional

Life-changing

Social impact

From Harvard Business Review, Sept 2016

Some are inwardly focused, like motivation, while others help people deal with other or operate in the world, Not surprisingly, the Value Pyramid is related to Maslow’s Hierarchy of Needs. For those not familiar with Maslow’s work, Maslow’s hierarchy of needs is often portrayed in the shape of a pyramid with the largest, most fundamental levels of needs at the bottom and the need for self-actualization and self-transcendence at the top. The most fundamental and basic four layers of the pyramid contain what Maslow called “deficiency needs” or “d-needs”: esteem, friendship and love, security, and physical needs. If these “deficiency needs” are not met – with the exception of the most fundamental (physiological) need – there may not be a physical indication, but the individual will feel anxious and tense. Maslow’s theory suggests that the most basic level of needs must be met before the individual will strongly desire (or focus motivation upon) the secondary or higher level needs.

According the Almquist, Senior and Bloch, “the elements of value approach extends his insights by focusing on people as consumers—describing their behavior as it relates to products and services….The elements of value pyramid is a heuristic model—practical rather than theoretically perfect—in which the most powerful forms of value live at the top. To be able to deliver on those higher-order elements, a company must provide at least some of the functional elements required by a particular product category.”

Depending on your industry and product, the elements of value will vary. Some industries or geographies will focus more on basic elements, those near the bottom of the pyramid, while others will be focused higher.

Product lifecycle is critical

One area the authors did not explore that I think is critical is product lifecycle. Also, although not a feature of the article, an industry’s stage of development strongly impacts which elements will drive value for a consumer. In an emerging industry, consumers will be much more driven by the functional features. As an industry matures, you no longer will be able to compete on the functional elements but instead will need to move higher up the pyramid. Everyone in the industry will be providing the functional features, so you will have to deliver emotional value. Even there, your competitors will catch up and you will then have to deliver life changing or social impact attributes.

The social slots business is a great example of how the value pyramid has driven success. Five + years ago, companies experienced great success just by providing an online version of slot machines that people formerly only played in casinos. As long as you had a game that worked, priced it correctly (free to play) and made it simple to use, you had a ticket to print money. As the market became more mature, emotional attributes became the factor that generated success. Companies late to the market leap-frogged the Functional leaders by making the products nostalgic (classic slots by DGN or Rocket Games) or better design and more attractive (Hit It Rich by Zynga). As the market gets even more mature and competitive the companies that are experiencing success are those that are introducing life changing elements, primarily affiliation and belonging (such as Huuuge Games).

Using the elements to grow

An area where the elements can help you succeed is by improving on the elements that form your core value, so you can differentiate from the competition and better meet your customers’ needs. The elements can also help you grow your product’s value without overhauling your game or product.

Some companies use the elements to identify where customers see strengths and weaknesses. First, they look at which elements are important in their industry and how they compare with competitors. Then if there are any significant gaps, the priority is eliminating those gaps. Once the gaps are closed, you can then see what elements could create a new gap above your competitors.

Implementation

To leverage the elements model effectively, you should integrate it into several key areas of your business:

New product development. The elements framework should provide ideas for new products and enhancements to existing products.

Pricing. If you are looking to increase your prices, you can soften the blow of the increase by concurrently increasing the value your customer receives from your product. Amazon Prime is a great example, as the service started at $79.99 (I think) with frequent discounts and is now significantly higher but the free shipping is only a side thought, as you get everything from streaming services to special credit cards.

Customer segmentation. Rather than only segmenting customers by demographic or behavioral group, you can use the elements to segment them by where they are deriving value. You can then focus on delivering more of the elements that these segments want or highlighting the elements that may exist but they are not aware of.

While adding value to increase competitive is not the most unique or newest idea, Almquist et. al., have created a framework to focus on creating the most value for your customers and knowing where to focus to increase that value. If you continue to deliver more value than your competitors, you will succeed.

Key takeaways

There are 30 core elements that drive the value a consumer derives from a product and the more they are willing to spend on the product

The values are hierarchical, similar to Maslow’s hierarchy of needs, and once a consumer gets the base value they will be more engaged by life changing or social impact elements.

The value you need to deliver is based on the life stage of the industry. Young industries are focused on functional value while you need to deliver higher level value to compete in a mature industry.

Different businesses

As I wrote then, the biggest challenge traditional game companies face when moving to a free-to-play model (at the time it was more Facebook than mobile) is that they are different businesses. Old school game companies, be it Nintendo or EA to Take2, are skilled at creating a great product that someone buys, enjoys and finishes. Free-to-play companies are creating a service (hence the now relatively old term software as a service), something that customers use over time and becomes part of their life (like Netflix or Amazon Prime).

Building and running a service requires a different skill set than building a great game. The former needs

Analysts to look at customer behavior and suggest changes to continually improve the product

Product managers to create new features and elements that keep existing players engaged and ensure strong elder gameplay for the most committed players

User acquisition specialists who not only can bring in new players but can reactivate the most valuable players

CRM experts who can communicate with existing players both inside and outside of the product through multiple channels to increase their engagement and loyalty.

Conversely, traditional game companies succeed with a very different skill set

Great game designers who can create a fantastic experience, though usually of a limited nature

Marketing gurus who can get people to purchase a product

Distribution experts who can ensure the product is placed prominently in front of potential customers.

I have no privileged information in how Nintendo structured its Super Mario Run team but based on the product and how they are managing it, I would bet the focused more on the skills needed by traditional game companies than those creating a free-to-play game service experience. The game clearly has great designers and their promotion by Apple shows they still know how to manage channels.

They do not understand free-to-play LTV

What they are lacking is an understanding of free-to-play economics, primarily how to optimize player lifetime value. I have written way too many times about customer lifetime value (even wrote a book on it) but it is still a concept that traditional game companies like Nintendo fail to grasp. In summary, lifetime value is the monetary value to your company of a new player and it is a function of monetization (how much they spend), retention (how long they remain a customer) and virality (how many other customers they bring in).

In the traditional game space, this equation is quite easy. For Nintendo, LTV is largely how much a payer pays for a DS and Wii game. It does increase by downloadable content (DLC), whether they buy additional Nintendo products and if they encourage friends to buy but it is largely driven by that retail purchase of a game.

This experience is evident in how Nintendo approached Super Mario Run. The product is built so that the free element is a teaser to get a $10 purchase. It is not built to create a long-term relationship between players and the game, where they return (and often spend) daily for months or years (no exaggeration, take a look at Mobile Strike or Clash of Clans or most of the games on the top grossing charts). They are still focused on the discrete purchase, selling the razor and not the blades.

This approached doomed Super Mario Run (and by the doomed, I meant compared to expectations and potential, as it will still generate millions), even if they were seeing more traction getting the initial $10 purchase. In the world of free-to-play, $10 is largely an irrelevant transaction. Supercell was acquired by Tencent for $8.6 billion because players are spending hundreds or thousands of dollars in the game. By focusing on the first ten dollars, Nintendo missed where the bulk of free to play revenue comes from and largely capped what most players would have to spend. Thus, a player who Nintendo could have built a relationship with that would generate $20,000 is now spending $10 and moving back to a Supercell or King or Zynga game.

Core game companies will continue to flail in the free-to-play business

I said it almost five years ago and it has largely held true, traditional game companies won’t succeed in free to play. Since I wrote that article a handful of game companies have seen some free-to-play success (most notable Hearthstone) or acquired respectable free-to-play businesses but most have either failed or gone bankrupt. We still have not seen EA turn their core games (FIFA, Madden, Battlefield) into free-to-play franchises. There is nothing from Microsoft or Sony on any mobile chart. Take2, not a player in the mobile space. You get the point. It’s no longer a question of when the core game companies will successfully move into free to play (and mobile) but when they will just give up (and investors will stop expecting it) and focus on what they understand.

Key takeaways

The failure of Super Mario Run by Nintendo was very predictable, as traditional game companies face many structural issues in creating free to play mobile apps.

The biggest hurdle is their team structure, as they are built to create a product and not run a successful service.

Core game companies also do not truly understand free to play economics, that customer lifetime value is driven by long-term retention and monetization and not a discrete purchase.

Key takeaways

The key to marketing to millennials is that marketing alone won’t succeed. Millennials will not be influenced by great 1-to-many brand marketing.

Instead, you need to create more value, more entertainment for the money, than their alternatives (which are not only casino products, but any form of entertainment).

You also need to provide a simple, compelling experience across platforms, allowing your users to have a unifed experience wherever and whenever they want.

Marketing social casino to millennials

I am speaking next week at EiG on marketing to millennials and wanted to share the key lessons you can apply to create a social casino offering more competitive for millennials. This is an issue that has caused consternation in the land based and online casino space for the past several years, as younger people are less likely to participate in traditional casino gaming. Rather than wringing your hands about the situation, there are several keys to staying relevant with the millennial demographic:

Marketing is two way. Rather than focus on delivering a message to potential millennial consumers, you need to build a conversation. One to many advertising is largely ignored by millennials, if they are even watching your ads on television or have not deployed ad-blocking software online, they are probably tuning out the advertising. Thus, to introduce potential customers to your product or game, you need to engage them in conversations. You can start the conversation on a blog or social media (Twitter, Facebook, Medium, etc.) but the key is to have conversations with as many potential customers as you can, not try to deliver a message to them. Engage with them, even when they do not agree or like what you are saying, continue the conversation while listening to your potential customers. You can only build relationships with millennials if you talk with them, not talk at them.

You can’t trick them. Much marketing, especially promotions, has been centered around convincing people to do what they do not want to do or should not do. This strategy, a mistake with millennials, takes two directions. First is the traditional grocery store trick, 5 for the price of 4, to get consumers who only want to buy one or two of an item to buy more than they need. The second is promotions with such convoluted T&Cs that the user never sees the benefit of the promotion. While these tactics have traditionally worked, it fails dramatically with millennials. They are more sophisticated in understanding why a company is proposing a certain promotion and are cynical enough to dissect the promotion to understand its actual benefits. Moreover, they have information readily available (it’s called Google) to find the offers that will benefit them and not fall for the ones that only benefit the company making the offer.

Provide value. Since promotion won’t drive usage, you need to provide more value to users than alternatives (which may be other casino games, but also eSports, television, etc). Thus, if they are going to spend $5 or $500 in your product, they need to get more entertainment value from that expenditure than they would from an alternative (and there are many alternatives). Thus, your pricing needs to be about delivering value, not by getting as much from the player as quickly as you can.

Create a simple digital cross-platform experience. Marketing and product are not two separate silos with millennials. You need to build a product that will appeal to them as marketing expertise will not make up for a sub-optimal product. For millennials, the key is creating a product that works across platform, or is platform agnostic, so they can use it on their laptop, their smartphone, their tablet, whenever and however they want. The experience needs to be consistent across all of these platforms (don’t ask them to set up separate accounts). It also needs to be simple, they are not going to spend an hour learning how to play, or even 5 minutes, they need to be able to start using the product immediately and enjoy it immediately.

Only great experiences will succeed

The key to succeeding with millennials is providing them with a great experience, not a great marketing campaign. They will not respond to marketing that does not deliver value, but if you give them a better experience than their alternatives they will respond accordingly.

Key takeaways

Creating a great new innovative products does not guarantee success, people have to find and try it.

The first key is to build something that people will search for. If there is little innovative or differentiated products, people will not even search for a new product.

If customers will not find a product via search, you need to develop cues so they will infer that the product is different and valuable to them.

One of the most frustrating results in business is launching a great game or product and then seeing it fail. Unfortunately, this phenomenon happens more often than not. In the game space, at least 80 percent of new launches (from established studios, new studios have a worse rate) are never ROI positive (that is, they never have an LTV that allows for ad spend). Even in retail, according to a recent study of 9,000 new products that generated strong distribution, only 40 percent were sold three years later.

Although I am a huge advocate of Blue Ocean Strategy, one central challenge is getting customers to adapt the new product. In the game space, many innovative and extremely fun products fail because they never gain traction with players.

A recent article in the MIT Sloan Management Review, Why Great New Products Fail by Duncan Simester, shows why so many good products fail and how you can reduce the risk of experiencing this fate. What Simester shows is that while most companies focus on customers’ needs, they do not understand how customers decide what to purchase. By understanding the customer search and inference processes, you can build a better strategy for the customer to discover a new, innovative product.

People don’t search for innovation

The first thing you need to realize is that in a market with little innovation the customer may not realize the value of looking for a better solution, they do not even think they exist. Thus, they may not find your innovative product because they do not know to look.

People Do Not Know To Search for Innovative Products

Alternatively, people may think the cost of searching for an alternative or innovation is too high despite knowing of the benefits. Somebody may realize there is a game in the App Store they would prefer to what they are currently playing but do not believe it is worth the effort to search through the thousands (or millions) of alternatives, download and test tens (or hundreds) and then find the innovative product they prefer.

Additionally, your best customers are the ones least likely to search. Research cited by Simester shows a strong relationship between the amount of prior expertise a consumer has about a product category and the extent they search for information before making a purchase decision. Effectively, the person feels they already know what is best so they see little incentive to search.

Compounding this problem is that potential customers with virtually no knowledge also will not search. They do not know what questions to ask, where to find answers or how to interpret the information if it arrives. Potential customers also do not understand the features that would benefit them. Thus, innovation would not increase the chance of a sale to this type of customer, no matter how much value the innovation adds, because the customer does not understand the value of the innovation.

Customers’ Inference Process

When search is incomplete, customers shift to forming inferences. They use what they observe to infer what is too difficult or costly for them to search for. A good example Simister uses is McDonald’s obsession with keeping parking lots clean. While customers do not really care if the parking lot is messy, if they see a dirty parking lot they will infer that the restaurant itself is dirty and go somewhere else. As Simester writes, “Although purchasing decisions are a different neural process than the visual process, a similar phenomenon occurs when customers are evaluating different products or services. Customers often do not realize they are forming inferences, and even if they do, they are powerless to stop it.”

Branding and inference

The most common cues customers use to infer product value are brand and pricing. Brands infer more than only product quality as consumers use brands to signal information about themselves.

The importance of brands differ by the market and consumer. When it is easy to search and generate information about the product, brands take on less importance. This is particularly the case with the sophisticated customers described above, as they can process the product information and make informed decisions about the opportunity. Conversely, an unsophisticated customer is likely to rely on the brand because they do not know how to process the product information.

In the game space you see very little value of brand because so much information is available to players. They can look at an AppStore description, process screenshots and watch videos to determine if they like a product, rather than care whether the game is from King.com or Supercell.

The role of the brand also varies across product features. Features that are on the spec sheet typically can be discovered by search. Other features, however, such as reliability and ease of use, are not easily available and thus it is these features where the brand’s role are most prominent. Going back to the earlier game example, a player may rely on their perception of a brand to determine how aggressive monetization will be, how often the game will be updated and how reliable the back-end is.

What you should do differently for innovative products

Given the challenges of conveying to users the value (or existence) of an innovative product, you need to build new products where customers can recognize their value. Thus, during your green light or incubation process, you should look at three aspects of the potential product.

Motivation to search. Will customers discover your innovation? An innovative offering will not succeed if customers do not discover it. First, are customers motivated to search? Are they willing to invest time to find a better option than they are currently using?

Ability to search.Can customer search effectively? Can reviews, customer or professional, help alleviate the issue.

Customer inferences. If customers cannot or will not search, you need to understand what cues consumers will use to infer the absent information. You may want to create cues to help customers with this inference process.

Innovation is not just about great products

The key is that innovation is not just about building a great product. When you are planning your new products, you need to understand if and how customers will find out about it. Build that into the product, or possibly seek an alternative if there is no clear way to educate users.

I am always on the look-out for new markets with good potential and a recent article on AdWeek’s SocialTimes caught my attention about the Arabic-language markets. Most of the buzz in the last year or so has been around sub-Saharan Africa, and while that is an intriguing markets most of their economies still lag significantly, and even more so technologically, behind the Arabic geographies.

The article quotes a study from Northwestern University in Qatar that a disproportionately high number of the top Facebook pages, YouTube channels and Twitter accounts are in Arabic. Saudi Arabia actually leads the world for YouTube viewers on mobile (50 percent of videos consumed) and the United Arab Emirates also posts impressive numbers (40 percent).

Games and entertainment represent a particularly interesting opportunity. When you breakdown the regions traffic, entertainment is first or second in every market (jockeying with interest in brands). The UAE, in particular, is a strong consumer of entertainment content.

I am not saying that you should pivot to focus on the Arabic-speaking market but you should look at it as a serious opportunity. Test user acquisition in the key markets (UAE, Saudi Arabia, Qatar and Kuwait). If you see traction for your app, consider translation into Arabic and potentially further localization of your content. In today’s hyper-competitive world of user acquisition, you cannot neglect potentially lucrative markets.

Key takeaways

The Arabic speaking markets represents an emerging opportunity and should be in the same conversation as sub-Saharan Africa.

Entertainment content, and thus games, is particularly successful in these markets.

You should test user acquisition in the key Arabic markets and then consider translation and localization if you generate traction.

I recently came across a great post, 9 Essential Ways to Use Scarcity to Increase Sales, on how to use scarcity to increase sales, something we all strive for. Scarcity is a technique used by traditional retailers for ages but something that applies to digital and virtual goods as well. By creating a perceived scarcity, customers are more likely to make a purchase quickly. It boils down to the phrase, “you always want what you can’t get.”

Scarcity promotions

There are several ways to use scarcity, including for virtual items:

Limited time sale. Make an offer that lasts for only a limited time. For example, players can get twice the normal amount of virtual currency with a purchase if the purchase is made in the next 24 hours.

Purchase countdown. Building on a limited time sale, Putting a timer or countdown within a sales context means defining some scarcity parameters. When the customer has a firm grasp on how much time he or she has left to make a decision, it adds a sense of urgency to the process.

Sale price countdowns. Countdowns can also be used in the context of a limited time sale price to remind viewers how much time is left to act before the discounted offer goes away.

Limited number of redemptions. Offer a sale that is only available for the first X customers.

Limited edition item. Sell a product where there are only a limited number made. This can be modified for virtual goods, there will only be a certain number of the good sold.

Low stock notices. While largely for retail, this can also be used with virtual goods, particularly limited edition virtual goods.

Limited time item. A virtual item or package that is only available for a certain number of days or hours.

Seasonal offers. A sale or item only available for a certain season. It can be anything from a Halloween Pumpkin latte to a Independence Day Virtual Chip bundle.

Scarcity basics

For scarcity to work, there are several criteria that you need to meet. The first key is that it is useful. Making something that has no value scarce does not magically impart value on the item or offering. There needs to be an underlying value that can be accentuated by scarcity.

The offering should be transferable. By allowing people to share the offer, the offer filters to those who value it. Finally, you need to be able to own it, even a virtual good. One of the values of scarcity is that you can show it off and there is no way to show off something you cannot possess.

There are several reasons why scarcity works, and understand these reasons can help you create a stronger offering:

Scarce items feel exclusive.

Scarce items appear more valuable.

Scarce items make people feel powerful.

In the article, the authors also point to four limits on using scarcity:

Test to know what works. As with anything, testing is always recommended. AB test different techniques, time limits, product limits, etc.

Too much pressure is a bad thing. Give the user or customer time to make their decision.

Everything in moderation. Limited edition or limited time sales work if they feel special, if there is one every day people soon realize they are only a sales tactic.

Scarcity tactics are not a fix for lagging sales. If your product is not appealing, offering less of it will not turn things around. These tactics make a good product more successful, they are not a way to trick people into using a bad product.

Scarcity is a tool

Scarcity can be a very useful tool when building your promotion strategy. It is not a silver bullet but used effectively can help improve sales and conversions.

Key takeaways

Scarcity, or perceived scarcity, is a very useful tool for increasing sales.

Scarcity works because it makes items feel exclusive, appear more valuable and make the buyers feel powerful.

While everyone discusses the importance of growth and companies continue to spend millions on marketing, they are often neglecting the biggest shift in product success in the past one hundred years, quality. Most understand the benefit of good online product reviews and its impact on sales, but this understanding usually generates efforts to game the review system. In truth, the underlying quality of the product is now the key driver of success and growth.

Fifty years ago, it was the gurus of Madison Avenue, glamorized in Mad Men, that meant the difference between failure and success. Pan Am became a leading airline through great marketing rather than a differentiated product, General Motors dominated the global automotive market through great promotions and ads, Crest became the top toothpaste through fantastic branding, etc.

Now, regardless of how brilliants your growth team is and how often they post on growthacker.com, your success will largely come down to the quality of your product. More accurately, you will not be successful without a great product (you can still fail with a great product and poor growth/marketing).

Why product quality has become paramount

The need for a great product is the result of virtually unlimited online product and service reviews. When people are considering a purchase, not only do they see the messaging from the vendor but they cannot avoid feedback from other users. If you are considering buying a new razor, the cool new features and catch jingle are likely to get you interested, but if the razor has 1.5 stars with a glut of negative reviews saying the product is worse than a razor half the price, you most likely will not try the razor. This effect is not only present with a consumer good but any product. Why buy a book that everyone says is filled with plot holes or a car that most people say they would not buy again. Again, the marketing message is less powerful than the actual experience of users.

Not only physical products

Not only does the principle of paramount product quality apply to physical goods but it is even more important with digital goods. While growth marketing for apps has become an art and science, if the underlying app has two or three stars even Chamath Palihapitiya (the brains behind Facebook’s growth team) would not be able to gain traction. All the great virals and cool apps may drive people to the app page, but then when they see the rating and reviews they are unlikely to download.

Even the retail environment has been rocked by this change to having a great product. Years ago, restaurants could survive by having a terrific location or being in a central tourist area. If they were in the right place, they could always attract new customers even if they had poor food and were over-priced. They would not get return customers but there would always be new ones. Hence the term tourist trap.

Now, if a restaurant aims to take advantage of customers, it will be punished by poor reviews on Yelp and TripAdvisor. Thus, the naïve new customers they have counted on will not materialize. Anecdotally, whenever I see a restaurant with three or less stars, I assume they will not survive. When I check back, most of them are gone within six months.

Changes who is important

The principle of paramount product quality also changes who your key partners are. In the past, many companies succeeded by focusing on the distribution layer. Having salesman in retailers promote your product over competitors was one of the strongest “growth” strategies. Carmakers spent more on their dealerships than on their product development. Even video game companies devoted the same resources to creating a great box as they did to create a good game.

Those strategies no longer work. A salesperson trying to drive a customer to the big new game that is actually not very good will have no credibility, as the customer is likely to check online and see the awful reviews. The car salesman who tries to sell the pre-owned Yugo will get laughed at when the little old man pulls out his phone and sees that the car should have been junked ten years ago. Even the retailer who charges for an end-cap display will not be able to convince retailers of bad products to invest in the marketing when people scan the bar code of the product and learn it is over-priced and does not work well.

Only the good shall survive

If you look at the companies that are thriving and growing, it is the ones that customers love. Tesla cars have universally great reviews, compare them with the reviews for Jaguars. Clash Royale from Supercell, the newest billion dollar game, has over 89,000 reviews averaging 4.5 stars. Airbnb, which has changed the hotel industry and is worth well in excess of $1 billion, also rates at 4 stars. The challenge is finding a successful product or service that does not enjoy great reviews.

Build a great product

While most acknowledge the importance of building a strong product, the necessity of having a great product to success is not yet understood universally. Building a great product should no longer be one slide on your Powerpoint or a nice to have element of your strategy, it needs to be the central focus. You need to devote the same or more time and resources to your product, not just at launch but continually keeping it great, if the other elements of your strategy are to succeed.

Key takeaways

The plethora of user reviews of all products and services has the formula for success, no longer can you rely on great marketing, distribution or branding.

The fastest growing and best performing products now are also best of breed, whether Clash Royale in the game category or Tesla in the car category.

From the start, you need to dedicate sufficient resources to product development, rather than just ensuring you have enough for marketing or distribution.

While many companies, both in the tech space and traditional companies, have invested billions in building their brand via social media, success stories are about as rare as a user acquisition company that does not promise better users for less money. While many companies have spent, and continue to spend, millions trying to tell stories and connect directly with their customers on social media, brands now seem less significant. An article in the Harvard Business Review, Branding in the Age of Social Media by Douglas Holt, shows that branding has been replaced by crowdculture. Holt writes that “Crowdculture changes the rules of branding—which techniques work and which do not.”

The history of branded content

Holt first points out that branded content is an outdated concept rather than an innovative marketing technique. Advertising campaigns like American Express’ Don’t Leave Home Without It (1975) and Nike’s Just Do It (1988) became part of popular culture by entertaining audiences. These campaigns worked because the entertainment media were oligopolies, limiting cultural competition. Only a few television networks and movie companies distributed content, so consumer marketing companies could buy their way to success by paying to place their brands in this tightly controlled cultural arena.

Technology has allowed people to opt out of ads, first with cable and satellite television then to DVRs and finally the Internet. For the first time, advertisers had to compete with real entertainment. Companies adjusted by creating entertainment content, such as BMW’s short movies for the Internet. These early (pre-social-media) digital efforts led companies to believe that if they delivered Hollywood-level creative, they could gather huge engaged audiences around their brands. Thus was born the great push toward branded content. But its champions did not think about, or at least discuss, new competition. This new competition was not from existing big media companies but from the crowd.

The birth of Crowdculture

Holt writes, “historically, cultural innovation flowed from the margins of society—from fringe groups, social movements, and artistic circles that challenged mainstream norms and conventions. Companies and the mass media acted as intermediaries, diffusing these new ideas into the mass market. But social media has changed everything. Social media binds together communities that once were geographically isolated, greatly increasing the pace and intensity of collaboration. Now that these once-remote communities are densely networked, their cultural influence has become direct and substantial. These new crowdcultures come in two flavors: subcultures, which incubate new ideologies and practices, and art worlds, which break new ground in entertainment.”

First, social media has democratized and expanded subculture. Previously, people had to gather physically with limited ways to communicate on niche topics, maybe magazines or newsletters, or small meetings. Now there are now crowdcultures around virtually every topic: ice cream, bacon, poker, tarot reading, etc. Now these groups stretch the world, allowing people to interact and share ideas, products, practices, news and aesthetics, and most importantly bypass the mass-culture gatekeepers. Social media has made cultural innovators and early adopters the same.

Second, producing innovative popular entertainment requires a distinctive mode of organization, sociologists describe it as an art world. In art worlds, artists gather in collaborative competition, working together they learn from one another, play off ideas, and push each other. The collective efforts of participants generate creative breakthroughs. Before the rise of social media, the mass-culture entertainment industries would take these innovations and repurpose them (thus the moniker of something becoming commercial).

Crowdculture has turbocharged art worlds, vastly increasing the number of participants and the speed and quality of their interactions. Holt writes, “no longer do you need to be part of a local scene; no longer do you need to work for a year to get funding and distribution for your short film. Now millions of nimble cultural entrepreneurs come together online to hone their craft, exchange ideas, fine-tune their content, and compete to produce hits. The net effect is a new mode of rapid cultural prototyping, in which you can get instant data on the market’s reception of ideas, have them critiqued, and then rework them so that the most resonant content quickly surfaces. In the process, new talent emerges and new genres form….These art-world Crowdcultures are the main reason why branded content has failed.”

Proof branded content is dead

If the theoretical arguments that branded content is no longer working do not convince you, let’s go to the data. Despite the billions spent on creating content, only three brands are in the YouTube Top 500. McDonald’s has 204,000 YouTube subscribers, PewDiePie has 41 million subscribers. Even Red Bull, considered the biggest branded content success stories with a $2 billion annual branded content budget, only has 4.9 million subscribers, way behind dozens of crowdculture start-ups with production budgets under $100,000. Dude Perfect, started by five Texas university athletes who make videos of trick shots and goofy athletic feats, has 8 million subscribers (3 million more than Red Bull).

It turns out that consumers have little interest in the content that brands churn out. Very few people want it in their feed. Most view it as clutter—as brand spam. When Facebook realized this, it began charging companies to get “sponsored” content into the feeds of people who were supposed to be their fans.

The alternative to content marketing

Given the emergence of Crowdculture, you can either abandon branded content or follow a strategy of what Holt calls “Cultural Branding.” There are five principals to cultural branding that can help your company succeed in social media.

Map the cultural orthodoxy. In cultural branding, the brand promotes an innovative ideology that breaks with category conventions. To do that, it first needs to identify which conventions to leapfrog, the cultural orthodoxy. Thus the first step is to understand what is currently considered “common sense.”

Locate the cultural opportunity. Over time, cultural orthodoxy begins to lose traction as people understand alternatives. Before social media, the influence of these alternatives would have been marginal, as the mainstream controlled the conversation. Social media, however, allows the crowd to convert a niche conversation into mainstream beliefs. One example would be travel, where for generations people thought about certain destinations (Florida, London, the Bahamas) as the places to vacation. Then with people sharing pictures and stories of the Maldives, Patagonia, Seychelles, etc., the travel industry changed dramatically. Thus, people were not only open but looking for alternatives to traditional destinations.

Target the crowdculture. Once you understand the cultural opportunity, target the crowdculture. If it is adventure travel, build an offering/company around it.

Diffuse the new ideology. Rather than just create branded content, create entertainment that leverages the identified cultural opportunity. The entertainment does not need to be great, it needs to tap into the Crowdculture vein.

Innovate continually, using cultural flashpoints. A brand can sustain its cultural relevance by playing off particularly intriguing or contentious issues that dominate social media conversations related to an ideology. That’s what Ben & Jerry’s does in championing its sustainable business philosophy. The company uses new-product introductions to show its ideology on a range of political issues.

By following the above five steps, you can create a product or company that taps into the Crowdculture. To brand effectively with social media, companies should target crowdcultures.

In pursuit of relevance, most brands chase after trends. But this is a commodity approach to branding as thousands are doing exactly the same thing with the same generic list of trends. Thus, consumers do not pay attention. By targeting novel ideologies flowing out of Crowdcultures, brands can assert a point of view that stands out in the overstuffed media environment. The key is rather than trying to force a story on a captive audience, you need to build a story and product that is consistent with the desires of the social media crowd.

Key takeaways

Most social media marketing is failing because of the outdated notion of creating branded content. Huge social advertisers, like Red Bull and Coke, fail to get a fraction of the mindshare of social media celebrities like PewDiePie.

Crowdculture brings together enthusiasts and advocates of certain beliefs and interests through social media, disintermediating traditional entertainment.

To brand effectively with social media, companies should target crowdcultures.

Most brands chase after trends but hundreds of companies are doing exactly the same. By targeting novel ideologies flowing out of Crowdcultures, brands can assert a point of view that stands out in the overstuffed environment.

I recently searched Pitbull on YouTube (don’t ask why I was searching for Pitbull) and I came across a great example of the future of advertising. One of the videos that showed up high in the search was Pitbull – Freedom. The video turned out to be an original song that featured the Norwegian Cruise Line’s ship Norwegian Escape. After watching this video, I realized that for several reasons it shows how advertising will look in the next ten years rather than how it has worked for the past one hundred (and how it works currently even in the performance marketing space).

By deconstructing the video advertising campaign, you can learn how to market effectively in 2016.

High search ranking

The first key to the success of this ad is that if you search for Pitbull on YouTube, it is one of the top-five results. Pitbull is a popular celebrity so will generate more searches than the Norwegian Cruise Lines. Thus, he provides exposure to a broader range of potential customers. In its first two weeks, the video generated more than 3.2 million views.

Relevant

Many advertisers, especially in performance marketing, make the mistake that once they get you into the ad their job is done. By getting the click, they can point to a high CTR or a low CPI. The problem is that they often drop you into an advertisement that has nothing to do with the reason you clicked. While in a rare case they still might convert you to a customer, more likely you will leave quickly, generating no value to the brand. In the Pitbull video, you actually get a song and video consistent with Pitbull’s non-sponsored offerings. The fact that the video is consistent with your expectations makes it much more likely to engage potential customers and create the value the brand is pursuing.

Engaging

Outside of Super Bowl ads, how many people really want to watch or experience an advertisement. This problem does not exist only in television but just look at the success of (and fear of) ad blocking software online. Rather than creating another advertisement that people want to avoid. Norwegian Cruise Lines created an advertisement people want to consume (40,000 upvotes versus less than 5,000 downvotes).

Not only do people want to consume the content, they want to engage with it. The video, again in its first two weeks, generated more than 2,100 comments. For comparison, I searched for Ford and came to a video of a Ford F-150 adalso released about two weeks ago, which was a traditional brand video. As opposed to Pitbull’s 3 million plus views, the Ford ad had slightly over 5,000 views. Rather than Pitbull’s 40,000 upvotes and 2,100 comments, Ford had 96 upvotes and 3 comments.

These numbers show the importance is not the distribution channel (both pieces of content are offered on YouTube) but the content. Ford simply used the same formula it has for almost 100 years in creating ads. Norwegian Cruise Line, however, rewrote the rulebook and created content for 2016. These numbers clearly show the Norwegian Cruise Line ad will have orders of magnitude more impact than Ford’s traditional ad on a modern channel.

Entertaining

The key difference in advertising today versus the past hundred years, or at least advertising successfully, is you need to create content that is truly entertaining. Consumers have thousands or millions of options of entertainment and they will not consume your ad when they can find something they like quickly and for free. Why watch the Ford video when you can watch an Adele video. Your ad has to be just as good and compelling as a pure entertainment product.

Brand marketing 2.0

It is easy for me to say television commercials are history but just as easy for someone else to say they will always remain predominant. Rather than just make the claim, I decided that the best way to compare the effectiveness of new age digital marketing versus traditional television brand marketing is to look at the companies creating the most shareholder value. As a shortcut to doing a full analysis, I searched for all the so-called “Unicorns”, private companies whose market value exceeds over $1 billion. The list, which can be found here, is striking in how few of the companies have had television ads (or at least ones that are memorable). There are 174 companies on the list but out of the 174, I have only remembered seven advertising on TV (Shazam, DraftKings, FanDuel, Machine Zone, Jawbone, Credit Karma and Airbnb). Among the ones who have not advertised (or at least enough that I have seen it), who I would say are doing pretty well:

Uber

Palantir

Snapchat

Pinterest

SpaceX

WeWork

Lyft

Zenefits

Docusign

SurveyMonkey

Most companies would like to show the same growth that the 167 companies that do not advertise on television have shown. The answer is to understand how to market to the consumer in 2016, and Pitbull is helping to show the way.

Key Takeaways

Pitbull’s promotional video for the Norwegian Escape cruise ship shows the future of advertising, as it is as much a music video as an ad.

The key to advertising successfully now is creating content that is relevant, engaging and entertaining.

Television is no longer a driver of success, as shown by less than ten of 174 Unicorns (private companies valued over $1 billion) are using it.

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Lloyd Melnick

This is Lloyd Melnick’s personal blog. I am EVP Casino at VGW, where I lead the Chumba Casino team. I am a serial builder of businesses (senior leadership on three exits worth over $700 million), successful in big (Disney, Stars Group, Zynga) and small companies (Merscom, Spooky Cool Labs) with over 20 years experience in the gaming and casino space.